CITY INVESTMENT SDN. BHD. V. KOPERASI
SERBAGUNA CUEPACS TANGGUNGAN BHD.
FEDERAL COURT, KUALA LUMPUR
LEE HUN HOE CJ (BORNEO), MOHD. AZMI FJ, EUSOFFE
ABDOOLCADER FJ
[CIVIL APPEAL NO. 30 OF 1984]
17 DECEMBER 1984
JUDGMENT
Mohd. Azmi FJ:
This is a claim by respondents/purchasers for specific performance of
immovable property and also for damages and other ancillary reliefs for
breach of contract. The appellants/vendors, a limited company, were the
registered owners of 49.871 acres of agricultural land held under Grant
15947 for Lot 3902 in the Mukim of Rasah in the District of Seremban. Some
time in 1976 they decided to develop the whole land and for this purpose
they applied to the appropriate authority for conversion and subdivision of
the property into housing lots. In the meantime they entered into two
separate agreements both dated 24 November 1976 with the purchasers a
Co-operative Society of civil servants - for the sale of a small portion of
the land to be developed. In the first agreement the vendors agreed to sell
and the purchasers agreed to buy 60 terrace lots, each having an approximate
area of 1,760 sq. ft. and at the request of the purchasers the vendors also
agreed to appoint themselves or a third party as a licensed housing
developer with whom the purchasers could execute a building contract for the
construction of terrace houses on each of the said lots.
The purchasers have
paid a sum of RM720,000 to the vendors consisting of RM300,000 as land price
and RM420,000 as development price. The construction price which the
purchasers have yet to pay is RM840,000. In the second agreement the vendors
agreed to sell and the purchasers agreed to buy 25 subdivided lots - 14
semi-detached lots of 5,000 sq.ft. each and 11 bungalow lots of 7,000 sq.
ft. per lot. The purchasers have also paid RM426,300 for these lots
comprising of RM172,000 as land price and RM254,300 as development price.
The purchasers have thus paid a total sum of RM1,146,300 to the vendors
under the terms of the two agreements. It is common ground that the second
agreement only concerns sale of vacant developed lots, but there is a
serious dispute regarding the first agreement as to whether it should be
construed as a sale of vacant developed lots only as averred by the vendors,
or sale of developed lots with houses as alleged by the purchasers so as to
bring the agreement within the ambit of the Housing Developers (Control and
Licensing) Act, 1966.
The learned trial Judge held that the first agreement
is a sale of land with houses and therefore caught by the Housing Developers
legislation. Out of 85 lots sold, the vendors have transferred to the
purchasers only one terrace lot under the first agreement and one
semi-detached lot under the second agreement. Ten of the bungalow lots under
the second agreement were found to be commercially useless as it would cost
about RM13 million to level the land. The learned Judge found the
appellants/vendors were in breach of both the written agreements for their
failure to transfer the various lots to the purchasers. In respect of the
first agreement, he ordered specific performance for the transfer of the
remaining 59 terrace lots to the purchasers and he also awarded compensation
for consequential loss which inter alia included RM960,000 damages
for additional costs of constructing the 60 terrace houses and RM187,200 as
indemnity under r. 12(1)(r) of the Housing Developers (Control and
Licensing) Rules 1970.
As to the second agreement; specific performance was
also ordered for the transfer by the vendors to the purchasers of the
remaining 13 semi-detached lots and 1 bungalow lot. For the 10 useless
bungalow lots, the vendors were ordered to refund the contract price of
RM203,000 with interest. In addition to specific performance the learned
Judge also awarded damages for increased cost of construction - RM117,000
for 9 semi-detached houses and RM148,500 for 11 bungalows i.e., for loss of
opportunity to have the bungalows built according to 1978 costs. The vendors
have appealed against the finding of liability for breach of contract on
their part and as well as against the reliefs granted to the purchasers
particularly the decree ordering specific performance of part of the
contract and as well as awarding damages which according to them is
prohibited by s. 14 Specific Relief Act 1950 (Revised 1974).
There is also a
cross appeal by the purchasers on quantum and the refusal of the learned
Judge to award them certain ancillary reliefs. On the issue of liability for
breach of the first agreement, it is contended by the appellants/vendors
that on the true construction of the document the contract involves only the
sale of vacant developed lots. Their liability is merely to assist the
respondents/purchasers in the construction of the houses and that unless the
building contract as envisaged under Clause 3 is executed by the purchasers,
the vendors are not obliged to build the houses. It is said that preamble
(E) read with Clauses 2 and 3 support the appellants' argument that the
construction part of the agreement is not binding unless the Clause 3
contract becomes enforceable. Since the respondents/purchasers have refused
to execute the Clause 3 building contract, the Housing Developers Act cannot
be applicable.
The first issue to be determined in this appeal is whether the learned
Judge erred in law and in fact in holding that the first agreement is a
"housing development" contract within the meaning of the Housing Developers
Act and the 1970 Rules made thereunder. In this connection the learned Judge
made the following finding:
On a true construction of Agreement No. 1, I find, first, that the
Vendors were selling both Terrace Lots and Terrace Houses by Agreement No.
1, secondly the Agreement No. 1 was within the purview of the Act and the
Rules, and thirdly the Agreement No. 1 constituted or incorporated a
binding, concluded and sufficiently well-defined building contract in regard
to the Terrace Houses, not dependent for its enforceability on the
subsequent signing of the draft building contract, (A40), which merely
reflected the desire of the parties hereto as to the form in which their
transaction was to take place. Parties hereto would be deemed to be bound by
those statutorily mandatory provisions such as those in r. 12 of the Rules
as if the same were engrafted or added to the Agreement No. 1 by consent.
Mr. Sethu, Counsel for the appellants, strenuously argued that the first
agreement is only for the sale of vacant land and not for housing
development. He contended that written agreement cannot be construed by
subsequent event but must be construed as at the date of its execution. The
agreement was executed in 1976 and merely because the appellants had
appointed themselves as `the developer' on 12 April 1978 under Clause 2 read
with preamble (E), cannot transform the agreement from sale of land albeit
developed land into a housing development agreement as envisaged under the
Act. According to the appellants, the key factor in Clause 2 which will be
reproduced is that it does not identify the developer. The appellants could
either appoint themselves or any third person to be the licensed housing
developer. Preamble (E) and Clause 2 and 3 are in the following terms:
(E) The Purchaser has requested and the Vendor has agreed to appoint a
Licensed Housing Developer with whom the Purchaser can execute a Building
Contract for the construction of the proposed building on each of the said
Plots.
(2) Within two (2) months commencing on the date of the receipt by the
Vendor of the written notification by the Appropriate Authorities of the
approval of the conversion and sub-division of the said Land, the Vendor
shall appoint a Licensed Housing Developer (hereinafter referred to as "the
Developer") for the construction of the proposed building in accordance with
the provisions and requirements of the Housing Developers (Control and
Licensing) Act, 1966 and the rules thereunder and subject to the provisions
and requirements of any Act, Enactment, Ordinance, by-law or regulation for
the time being in force and the sanctions of the Appropriate Authorities,
for the sum specified in s. (9) of the First Schedule hereto (hereinafter
referred to as "the Construction Price").
(3) The Purchaser hereby covenants to enter into a Building Contract with
the Developer for the construction of the proposed building for the
Construction Price within two (2) months commencing on the date of the
receipt by the Purchaser of the Vendor's notice in writing of the
appointment of the Developer.
The construction price under the first schedule is at RM14,000 per
terrace house - thus making a total of RM840,000 for 60 units (see p. 277 of
appeal record).
The general principle of construction of contract applies to all
contracts whether they are building contracts or not and in each case the
meaning of any clause in a particular contract has to be ascertained by
looking at the contract as a whole and giving effect so far as possible to
every part of it (see National Coal Board v. Wm Neill & Son (St Helens)
Ltd. [1984] 1 All ER 555). Mr. Sethu has drawn our attention to p. 560,
the judgment of Piers Ashworth QC which states:
The first two issues involve the construction of the contract. I bear in
mind the principles of construing a contract. The relevant ones for the
purpose of this case are: (1) construction of a contract is a question of
law; (2) where the contract is in writing the intention of the parties must
be found within the four walls of the contractual documents; it is not
legitimate to have regard to extrinsic evidence (there is, of course, no
such evidence in this case); (3) a contract must be construed as at the date
it was made: it is not legitimate to construe it in the light of what
happened years or even days later; (4) the contract must be construed as a
whole, and also, so far as practicable, to give effect to every part of it.
We have no quarrel with the principle of construction that a contract
must be construed as at the date it was made. To ascertain whether this
principle can assist the appellants' case, it is necessary to consider
whether without Clause 3 contract being executed, the first agreement can
nevertheless constitute a binding contract to sell land with houses.
The
effect of preamble (E), Clauses 2 and 3 is that the appellants agreed to
appoint themselves or a third party as a licensed housing developer to
construct the houses on the 60 terrace lots; that the appointment should be
made by the appellants within two months from the date of receipt of
approval of conversion and subdivision of the whole land; that the developer
so appointed shall construct the terrace houses in accordance with the 1966
Act and 1970 Rules for the sum of RM840,000; and the respondents agree to
enter into a building contract with the said developer.
The question is,
what exactly is the purpose and the nature of the Clause 3 building contract
that is envisaged should the appellants appoint themselves as `the
developer' which in fact turns out to be the case? Indeed, could a third
party be appointed at all as a housing developer, and what really would be
the purpose of such a contract whether it is executed with the appellants or
a third party?
The naming of the developer by the appellants under Clause 2,
in our view, serves no real purpose as it is difficult to envisage how a
third party can be appointed as the developer in the housing scheme except
perhaps as a sub-contractor or agent of the appellants since both the land
price and the development price have already been paid by the respondents to
the appellants. Further, the construction price of RM840,000 together with
other charges have already been finalized in the first schedule to the Sale
and Purchase Agreement so as to leave the respondents with nothing of
importance to negotiate with Clause 3 developers be they the appellants or
any other licensed housing developer.
Reading the agreement together with
the four schedules as a whole, it is difficult and perhaps impossible to
disagree with the conclusion of the learned Judge that the agreement is not
purely for the sale and purchase of land but also for 60 terrace houses as
alleged in paragraph 2 of the respondents' Statement of Claim. Otherwise
there is no conceivable purpose in the appellants being given so much powers
in the development and construction of the houses. Effect must be given to
all these terms and not merely to clauses 2 and 3.
For instance under Clause
24, the first, second, third and fourth schedules must be taken, read and
construed as essential parts of the agreement. Separate costs of land,
development and construction have been agreed under the first schedule, and
as stated earlier, the land price and development price have in fact been
paid to the appellants. The architect's standard plan of the terrace houses,
their specifications and the site plan have also been agreed and finalized
in the second, third and fourth schedules respectively.
If the agreement is
intended purely for the sale of vacant developed land, there is also no
purpose in providing under Clause 28.2 that the appellants shall in their
absolute discretion appoint any architect or consulting engineer of their
own choice without reference to the respondents, and for the respondents to
be bound by such appointments and any decision or certificate of such
architect or engineer.
This and other provisions in the agreement including
the four schedules can leave no room for doubt that on the true construction
of the written instrument, it is an agreement for sale and purchase of land
with houses and it cannot be said that on the basis of preamble (E) the
appellants were merely assisting the respondents in the construction of the
houses. In fact preambles (B) and (C) of the agreement make reference to
"building lots" and preamble (D) to "the proposed building". As correctly
pointed out by Mr.Humfrey Ball in his submission, even if a third party had
been appointed as a developer he would get his money from the appellants and
not from the respondents and he would be under the effective control of the
appellants under Clause 28.
As stated elsewhere in this judgment, the terms for the construction of
the houses are already covered fully by the executed agreement and it is not
dependent on the draft building contract under Clause 3. The appellants and
the respondents have already bound themselves contractually under the main
agreement in all material aspects of the construction of the terrace houses.
Therefore the learned Judge did not err in law or in fact when he concluded
that the first agreement to sell land with houses was binding on the parties
and not dependent on the execution of another building contract under Clause
3 which in effect became entirely unnecessary when the appellants appointed
themselves as `the developer'. We therefore reject the appellants'
submission that there must be execution of Clause 3 contract before there
can be a breach.
There is a second and stronger ground why the first agreement should in
law be construed as a contract of sale and purchase of land with houses. In
our judgment even if the execution of the Clause 3 contract is intended by
the parties to be crucial and a condition precedent to the construction part
of the agreement, such intention has been rendered nugatory by force of the
housing developers legislation. The agreement as it stands constitutes a
statutorily binding `housing development' contract and the appellants a
`housing developer' within the meaning of s. 3 of the Housing Developers
(Control and Licensing) Act 1966, the relevant parts of which provide:-
3. In this Act unless the context otherwise requires:
"housing developer" means any person, body of persons, company, firm or
society (by whatever name described) engaged in or carrying on or
undertaking a housing development or desirous of doing so;
"housing development" means the business of developing ... more than four
units of housing accommodation which will be or are erected by such
development; and for the purposes of this definition "develop" means to
construct or cause to be constructed, and includes the carrying on of any
building operations for the purpose of constructing housing accommodation
in, on, over or under any land with the view of selling the same or the land
which would be appurtenant to such housing accommodation.
The non-execution of the Clause 3 contract is therefore not a crucial
factor in construing the agreement as a contract of sale and purchase of
land with houses. The agreement when construed as a whole at the date of its
execution in 1976 shows a clear intention by the parties that the appellants
are at all material times desirous of undertaking, or carrying on, or
engaging themselves in the construction of the 60 terrace houses within the
meaning of "housing developer" and "housing development" as defined in the
Act. T
hus, what is crucial is the desire of the appellants to be a housing
developer and this is clearly expressed in the enabling provision in Clause
2 read together with the rest of the agreement particularly Clauses 24 and
28.2 and the contents of the four schedules. This "desirous of doing so" on
the part of the appellants as provided in the definition of "housing
developer" is sufficient to bring them and the agreement within the purview
of the Act. It makes no difference that the appellants only appointed
themselves as the actual housing developer later in 1978 after the
conversion and subdivision of the land have been approved.
From the agreement there can be no doubt that the appellants are clearly
desirous of undertaking a housing development of more than four units of
housing accommodation which will be erected with a view to selling the same
to the respondents for the benefit of their members. This desire has
subsequently crystallized into actual deed when they appointed themselves as
the developer. In the circumstances, the terms and conditions under the
Housing Developers (Control and Licensing) Rules 1970 and in particular r.
12(1) must be read into the agreement as if they were part and parcel of
what the parties have bargained for. Under r. 12 (1)(o) the appellants are
accordingly bound to deliver vacant possession of the 60 terrace lots with
houses not later than 18 months after the date of signing the agreement. In
the absence of any certificate by the Controller waiving or modifying the
date of delivery of vacant possession under r. 12(2) the appellants have
committed a breach of contract by failing to deliver vacant possession by 24
May 1978. The application of the Act and the Rules is in fact consistent
with the intention of the parties as expressed in Clause 2 of the agreement.
The refusal of the respondents to sign a building contract with the
appellants under cl. 3 of the agreement is also justified in view of the two
offending clauses referred to in the respondents' Reply to the Statement of
Defence. It should be emphasized that the respondents' case has never been
founded on any allegation that the first agreement is a sham, but this
subsequent attempt by the appellants to contract out of the 1966 Act and the
1970 Rules even if successfully executed would be null and void and of no
effect. As such the principle enunciated by Geoffrey Lane LJ in
Aldrington Garages v.Fielder [1978] 7 HLR 52 @ 62 has no application. A
device to avoid possible consequence to statutory provision is not wrong if
and only if it can be done legitimately. The attempt of the appellants to
contract out of the Act is clearly not a device which can be described as
legitimate. It is an open defiance of the Housing Developers legislation.
Having regard to the policy and objective of Housing Developers Act 1966 and
the 1970 Rules made thereunder the protection afforded by this legislation
to house buyers is not merely a private right but a matter of public
interest which Parliament has intended to protect from being bargained away
or renounced in advance by an individual purchaser (see the principle
enunciated by the House of Lords in Johnson v. Moreton [1978] 3 All
ER 37 @ 56 and applied by this Court in S.E.A.Housing Corporation v. Lee
Poh Choo[1982] CLJ 305 (Rep). As stated by the learned Judge at p. 12 of
his judgment:
Now the insertion by the Vendors of Clauses (1) and (2) of the draft
building contract was at the heart of the problems in the case, the
immediate and main causes of the refusal of the Purchasers to approve and
sign the draft building contract. From the undoubtedly clear meaning of the
words of the disputed clauses themselves, it was a clear attempt to get
around the Act and the Rules and to remove any protection available under
the Act or the Rules to the Purchasers. The clauses were also inconsistent
with the Act and the Rules. They were illegal or against the public policy,
for to use the words of Lord Simon in Johnson & Anor. v. Moreton (supra)
in connection with the attempted avoidance there of provision of
Agricultural Holdings Act, 1948 of England, that to allow such clauses to
stand, `it would be to reinstate the mischief which the statute was designed
to remedy and to render the statutory provisions a dead letter.'
Accordingly, the Defence raised by the appellants in paragraph 4(ii) that
they were prevented from constructing the houses as a result of the
respondents' failure to enter into the building contract under Clause 3 of
the agreement cannot be sustained. Under Clause 7 of the agreement read with
the first schedule, the development price of RM420,000 which the respondents
have paid must be for the clearing and levelling of the land and as well as
for the construction of the infrastructure of the land in the housing
scheme. The appellants have done only the clearing and levelling but not the
infrastructure work which by virtue of r. 12(1)(k) should include the
construction by the appellants at their own costs of roads, driveways,
drains, culverts, etc.
Apart from breach of contract for not carrying out
the infrastructure work of the land and the erection of the houses, the
appellants are also in breach of the statutory term of the contract for
delay in the completion and delivery of vacant possession of the houses to
the respondents as required by r. 12(1)(r). Since only one terrace lot has
been transferred, the appellants are liable not only for refusal to transfer
the remaining 59 lots under the first agreement but also for failure to
build and give vacant possession of the houses to the respondents. Mr. Sethu
has submitted that the real reason for respondents' refusal to execute the
Clause 3 contract is as stated in ground 3(b) Amended Memorandum of Appeal
and not because of the two offending clauses. These have been fully set out
by the learned Judge at p. 7 of his judgment and we do not wish to reproduce
them. We see no reason to disturb the finding of fact of the learned Judge
that the actual reason for the breakdown in relationship between the two
parties was due to the two offending clauses. In any event, for reasons
already stated, the non-execution of the Clause 3 building contract is not
at all material, and does not excuse the appellants from performing their
obligation under the first agreement as supplemented by the Housing
Developers legislation.
As regards the second agreement also dated 24 November 1976, it involves
the sale and purchase of 25 vacant lots - 14 semi-detached and 11 bungalow
lots. As in the first agreement it is also part of a larger scheme of
development undertaken by the appellants on their land but unlike the first
agreement, the sale is in respect of vacant developed land without any
building. By para. 6 of the Statement of Claim, the respondents allege that
the appellants are in breach of the contract for not carrying out the
development or the infrastructure of the said land.
The element of housing
construction is therefore absent in the second agreement. It is common
ground that of the 14 semi-detached lots, only one had been transferred to
the respondents by the appellants. On the pleadings and evidence, the
appellants have refused to transfer the remaining 13 lots because of
non-payment by the respondents of excess land in four of the lots as
subsequently disclosed in the sub-divisional documents of title.
The
appellants relied on Clause 9 and 13 in their argument that the 14 lots were
sold enblock and not as individual lots and as such they are entitled in
refusing to transfer the remaining 13 lots until extra payments are made in
respect of the four excess lots. The learned Judge rejected the appellants'
arguments. We think that he is amply justified in rejecting them. Clause 9
makes provision to cover the situation where a lot subsequently found to be
in excess or in deficit of the original area sold for each lot for
adjustment to be made as to the purchase price of the land. Clause 13 merely
provides that such adjusted payments should be settled before transfer.
The
undisputed facts show that out of the remaining 13 semi-detached lots still
not transferred, 6 lots are not at all affected by Clause 9 as no adjustment
is required. In 3 of the lots, there was a deficit which means there had
been overpayment made to the appellants. It is only in the 4 lots that there
was excess land for which payment has not been made. The finding of the
learned Judge is that the deficit or excess would appear to range between
500 and 2,393 sq. ft. and in terms of payment between RM1,305 and
RM6,939.70. Since only 4 lots are affected, we see no reason why the 6
unaffected lots and the 3 deficit lots should not be transferred to the
respondents.
The `sale by enblock' argument cannot succeed as the appellants
must or ought to have known that the sale to the respondents is in fact a
sale for members of the respondents' Co-operative Society and the appellants
have in fact waived such right, if any, by transferring one of the 14 lots
without waiting for extra payment in respect of the 4 excess lots. In our
view the learned Judge was therefore right when he found the appellants to
be in breach of contract for refusing to transfer the 9 unaffected lots.
As regards 10 of the 11 bungalow lots, the learned Judge also found the
appellants to be in breach for not complying with Clause 28 of the agreement
which imposes an obligation on their part to convey lands that are "flat
enough to erect a building thereon". No reasonable explanation was given why
the remaining 1 bungalow lot was not transferred to the respondents.
Having
regard to the nature of the breach, the learned Judge was also right in
holding that Clause 7 of the second agreement pertaining to appellants'
right to offer alternative lots does not apply. This provision only applies
in the event of any alteration in the overall development of appellants'
land which materially affects the lots sold to the respondents. Ten of the
bungalow lots are admittedly useless commercially because of the steep
terrain and not caused by any change in the overall development of
appellants' land.
Having paid for the full purchase price and development
price of RM426,300 as agreed in the first schedule (RM172,000 land price and
RM254,300 development price) the Defence of frustration of contract raised
in para. 7 of Statement of Defence is untenable. Such defence cannot be
raised merely because the cost of levelling 11 of the bungalow lots turns
out to be RM13 million and therefore too costly for the appellants. As such,
the defence raised in para. 7 of their pleading cannot also succeed since
the appellants have no right under the agreement to offer alternative lots
under such circumstances. Mr. Sethu has not seriously attacked the finding
of liability of the appellants in respect of the second agreement. The
appellants have clearly committed breach of contract by transferring to the
respondents only one of the 25 building lots. Their failure and refusal to
transfer the remaining 24 lots is a serious breach although the respondents
have not all along abandoned the agreement, and are willing and able to
perform their part of the contract. We must in the circumstances state
clearly that there is no merit at all in the appeal against liability in
respect of both agreements.
As regards the appeal against reliefs granted to the respondents for the
breach of contract, the main bone of contention is that under s. 14 Specific
Relief Act, 1950(Revised 1974), the learned Judge should either order
specific performance or award compensation for damages for all loss
resulting from the breach of contract, but not both. At the date of trial
one terrace lot under the first agreement and one semi-detached lot under
the second agreement had been transferred by the appellants to the
respondents. Further 10 of the bungalow lots under the second agreement are
commercially useless.
Hence the learned Judge in exercising his discretion
was only able to order specific performance in respect of 73 out of 85 lots
purchased under the two agreements viz: (i) 59 terrace lots under the first
agreement (ii) 13 semi-detached lots and 1 bungalow lot under the second
agreement, the particulars of which are set out in schedule 1 of the Court
Order (see pp. 246-248 of appeal record). The learned Judge ordered the
appellants to refund to the respondents a sum of RM203,000 in respect of the
10 useless bungalow lots i.e. the price paid by the respondents for the land
at RM8,000 per unit and for development at RM12,300 each under the schedule
to the second agreement (see p. 296 of appeal record) together with interest
at 4% per annum from 9 August 1978 to date of judgment and thereafter at 8%
per annum until date of satisfaction. As for the remaining 15 lots under the
second agreement it is ordered that a sum being the difference between extra
payment for excess land and excessive payment for any deficient land be paid
by either party to the other party under Clause 9 with liberty to apply.
With regard to compensation the following orders were made:
(a) RM960,000 damages for additional costs the respondents would have to
incur in erecting 60 terrace houses under the first agreement (4th order);
(b) RM187,200 indemnity for delay of 18 months (from 12 June 1978 to 11
December 1979) payable under r. 12(1)(r) read with r. 12(1)(o) of the
Housing Developers (Control and Licensing) Rules 1970 calculated at 8% per
annum on the total contractual price of RM1,560,000 for the 60 terrace
houses under the first agreement (5th order);
(c) RM117,000 damages for increased cost of construction of 9
semi-detached lots under the second agreement calculated at RM13,000
increase per unit (6th order);
(d) RM148,500 damages for increased cost of construction in respect of 11
bungalow lots under the second agreement at RM13,500 increase per unit (6th
order).
The learned Judge however did not allow respondents' claim for damages
for loss of rentals in respect of all the 85 lots for being too remote and
therefore failed to measure up to the test established in the case of
Victoria Laundry (Windsor) Ltd. v. Newman Industries Ltd. [1949] 1 All
ER 997 CA. Nor did he allow any consequential damages for loss in respect of
the 10 useless bungalow lots on the ground that the contractual price of the
land was in fact higher than the market price and as such no loss was in
fact suffered by the respondents under this particular head of damages.
In granting damages in addition to specific performance, the learned
Judge had this to say in his judgment:
The remedy of specific performance is discretionary, such discretion to
be exercised according to well-settled rules. The right to sue for specific
performance in equity is quite distinct from a cause of action at common
law. Thus a breach of contract which gives rise to an action for damages is
not always a prerequisite for an action for an order for specific
performance which is granted when there are circumstances justifying it.
Please see the case of Hasham v. Zenab [1960] AC 316. Further, since
law and equity are administered concurrently by our Courts, this means that
the Court can award damages and grant specific performance in the same case,
or grant specific performance as to part of a contract and damages as to the
rest. In this connection land is always deemed by law to have a special
value the loss of which may not be adequately measured or compensated by
damages or money.
The distinction between cause of action at common law and equity for
breach of contract is not affected in England by the Judicature Act.
Although the Act enabled every Division of the High Court to give both legal
and equitable remedies the effect is only on procedure. This is fully
explained by Lord Blanesburgh in Mama v. Sassoon [1928] LR IA 360. As
far as our law is concerned s. 11 of Specific Relief Act gives the
discretion to the Court to order specific performance in four categories of
cases and s. 11 (2) provides that unless and until the contrary is proved,
the Court shall presume that the breach of a contract to transfer immovable
property cannot be adequately relieved by compensation in money. The burden
of proof is therefore on the appellants in this case to show that the
failure to transfer the various housing lots can adequately be compensated
in damages, which in our view the appellants have not been able to do. The
power of the Court to award compensation in addition to specific performance
is derived from s. 18 Specific Relief Act 1950. Of particular relevance to
this case is subsection 3 of that section which provides:
If in any such suit the Court decides that specific performance ought to
be granted, but that it is not sufficient to satisfy the justice of the
case, and that some compensation for breach of the contract should also be
made to the plaintiff, it shall award him such compensation accordingly.
The following illustration is given under this subsection:
A contracts with B to sell him a house for RM1,000 the price to be paid
and the possession given on 1st January. A fails to perform his part of the
contract, and B brings his suit for specific performance and compensation,
which is decided in his favour. The decree may besides ordering specific
performance, award to B compensation for any loss which he has sustained by
A's refusal.
Thus in the present case the learned Judge has the discretion to order
specific performance of the transfer of the 59 terrace lots under the first
agreement, and to satisfy the justice of the case he can unless s. 14
applies, also award the respondents compensation for any consequential loss
which they have sustained as a result of the breach. The same applies to the
second agreement except for the 10 useless bungalow lots for which the
learned trial Judge has in the exercise of his discretion ordered a refund
of the purchase price instead of specific performance. Since the first
agreement is a housing development contract under the Housing Developers
Act, the respondents are also statutorily entitled to indemnity for delay
under r. 12 (1) (r) of the 1970 Rules.
One of the exceptions to s. 11 is s. 16 which prohibits specific
performance of a part of a contract unless the case comes under s. 13 or 14
which deal with indivisible contracts or s. 15 which deals with divisible
contracts. Whether a contract is indivisible or divisible must of course
depend on the facts of each particular case, the terms of the contract and
the nature of the property. Mr. Sethu did not refer to ss. 11 and 18. His
argument is purely based on s. 14 which he says is the correct section to be
applied in this particular case and as such the learned Judge must elect
either to grant specific performance of the transfer of the various lots to
the respondents or award compensation for damages but not both. Section 14
provides:
Where a party to a contract is unable to perform the whole of his
part of it, and the part which must be left unperformed forms a considerable
portion of the whole, or does not admit of compensation in money, he is not
entitled to obtain a decree for specific performance. But the Court may, at
the suit of the other party, direct the party in default to perform
specifically so much of his part of the contract as he can perform, provided
that the plaintiff relinquishes all claim to further performance, and all
right to compensation either for the deficiency, or for the loss or damage
sustained by him through the default of the defendant.
It must be obvious that not all claims for specific performance must come
under s. 16, and whether a case properly falls under ss. 13,14 or 15 must
again depend on the facts of each particular case. For the purpose of ss. 13
and 14, the appellants must be unable to perform the whole of their part of
the contract i.e., they are able and willing to perform only part of the
indivisible contract. If the part which must be left unperformed bears only
a small proportion in value to the whole contract and admits of compensation
in money then s. 13 applies, and the Court may direct specific performance
of so much of the contract as can be performed and award compensation in
money for the deficiency. But where the part of the indivisible contract
which must be left unperformed is large or does not admit of compensation in
money, the case comes under s. 14 and the Court cannot order both specific
performance and compensation. The Court however may order specific
performance at the instance of the plaintiff provided he renounces all
rights to damages and to further performance. On the other hand s. 15 deals
with divisible contracts. The question for determination is whether the
present two agreements under consideration come under s. 14. As far as the
first agreement is concerned, Mr. Sethu says it comes under s. 14 because a
part of the contract which the appellants were unable to perform viz the
construction part forms a considerable portion of the whole contract and
therefore the respondents should not be entitled to specific performance of
the part which they could perform viz the transfer of the land titles,
unless the respondents agreed to relinquish all claim to further performance
and all right to compensation for any loss or damage sustained by them. In
short, the Court having ordered specific performance of the transfer of the
various lots should not in addition award damages. In our view there is
fallacy in that argument. Admittedly, no one can dispute that in the first
agreement the part of the contract relating to the construction of the
houses forms a considerable and indeed a major portion of the housing
development contract. But that by itself is insufficient to bring the case
under the provision of s. 14. We are dealing with a housing development
contract where the appellants/vendors can but are unwilling to convey both
the lands and houses i.e. they are unwilling and not unable to perform the
whole contract. It is not a case where for some reasons or other they are
unable through really no fault of their own to perform the whole contract in
which case the Court may nevertheless at the suit of the plaintiff direct
the party in default to perform specifically so much of his part of the
contract as he is able to perform. Section 14 is one of three exceptions to
the rule which prohibits the remedy of specific performance of a part of a
contract. In this context, s. 14 must be read together with ss. 13, 15 and
16. These four sections constitute a separate code within the Specific
Relief Act and the language of each section must prevail. As stated by Lord
Sumner in Graham v. Krishna Chunder Dey [1924] LR Vol LII Indian
Appeals 90; [1925] AIR PC 45:
Sections 14 to 17 inclusive of the Specific Relief Act, 1877 (which are
equivalent to our ss. 13 to 16) are both positive and negative in their
form. Taken together they constitute a complete code, within the terms of
which relief of the character in question must be brought, if it is to be
granted at all. Although assistance may be derived from a consideration of
cases upon this branch of English Jurisprudence, the language of the section
must ultimately prevail. Section 17 prescribes that there shall be no grant
of specific performance except in cases coming within one or other of the
three previous sections.
Thus, in Parthasarathi v. Venkata Kondiah [1965] AIR Vol 52 Madras
188, the appellant entered into a contract to sell two items of immovable
property, but it was later found that the contract was incapable of
performance as the vendor had no title to sell one of the items, and this
item formed considerable portion of the whole property. The purchaser
relinquished his claim for further performance in respect of this item of
property. It was held that s. 15 of the Indian Specific Relief Act (which is
equivalent to our s. 14) applied to the case, since the vendor was actually
unable to perform the whole contract and not because he was unwilling to
perform in total breach of the contract. Whereas in this case, Mr. Sethu
says the lapse of time and the Housing Developers Act are the inabilities
which prevent the appellants from performing the whole contract. We fail to
understand how these two factors can constitute inabilities.
The delay was
due to the appellants' own conduct in trying to vary the terms of the first
agreement by introducing two clauses in the proposed Clause 3 contract and
as well as to contract out of the Housing Developers Act and Rules. The Act
came into force on 29 August 1969 well before the first agreement was
executed in 1976 and they could not be taken by surprise by the Act. As
stated earlier, it is not a case where the appellants are unable to perform
the whole contract but they are able but unwilling to do so on account of
the disharmonious negotiations culminating in the respondents' refusal to
abandon the statutory protection given to them by the Housing Developers
legislation as purchasers of housing accommodation. Section 14 of the
Specific Relief Act is enacted for the benefit of the purchaser and cannot
operate to his detriment (see Sultan Kani Rowthen v. Md. Meera Rowthen
[1929] AIR Madras 189). We agree with Mr. Humfrey Ball's submission that
this is a case where both parties are able to perform the whole of their
respective obligations. The respondents are able and willing to perform
their part but the appellants are unwilling though able to perform their
part of the bargain. We have been referred to the case of Hiralal
Lachmiram Pardeshi v. Janardan Govind Nerlekar [1938] AIR Bombay 134
where in holding that s. 15 of the Indian Specific Relief Act did not apply,
Broomfield J at p. 136 said:
Sections 14 and 15, Mr.Thakor says, should be confined to the case where
the inability to complete the contract is due to a legal defect such as want
of title, whereas, here defendant 1 has not parted with any legal interest
in plot (d). There are merely equities arising in favour of defendant 2.
Whether this is so as a matter of fact the record does not show. As I have
mentioned, the decree of 1 September 1930, directed a sale deed to be
executed within fifteen days. But, apart from that, this argument, although
undoubtedly ingenious is, in our opinion, unconvincing. The question before
the Court in such a case must always be whether the contract can be executed
in substance.
We do not think the above opinion of Broomfield J can carry the
appellants' argument any further having regard to the facts of the above
case. In that case A who owned four plots (a), (b), (c) and (d), agreed to
sell plot (d) to B for a certain price. Later on, A agreed to sell all the
four plots to P. B filed a suit against A claiming specific performance of
the agreement in respect of plot (d) and P also filed a suit claiming
specific performance of all the four plots. P was unwilling to purchase
plots (a), (b) and (c) only, without compensation for A's inability to
convey the plot (d) to him. It was held that A by reason of his prior
agreement with B was just as much unable to carry out the whole of his part
of original agreement within the meaning of ss. 14 and 15 as if he had no
legal title to plot (d). Section 15 (which is equivalent to our s. 140) was
held to be not applicable.
In our case the first agreement can in substance be performed, and there
is no legal impediment to prevent the appellants from transferring the land
with houses. In Hiralal Lachmiram case (ante) the vendor could
not sell the plot to the purchaser because it had been sold to a previous
purchaser. We therefore reject the argument that the delay that has occurred
and the Housing Developers Act constitute `inabilities' under ss. 13 and 14
of Specific Relief Act. We therefore find that s. 14 does not apply to the
facts of the present case.
On issue of liability we have decided that the first agreement is binding
as a housing development contract and that its enforceability does not
depend on the execution of the proposed Clause 3 building contact. Be that
as it may we are of the view that the first agreement is a divisible
contract in that its terms draw distinction between the subdivided lots and
the terrace houses to be built on them. Separate prices are provided for in
the first schedule in respect of land and houses and each part appeared to
stand on a separate and independent footing so as to be within the terms of
s. 15.The housing construction part is governed primarily by terms and
conditions provided by r. 12(1) of the Housing Developers (Control and
Licensing) Rules which are deemed to be incorporated in the agreement;
whereas the terms governing the subdivided lots are almost wholly spelt out
by the terms of the written agreement itself. Section 15 provides:
When a part of a contract which, taken by itself, can and ought to be
specifically performed, stands on a separate and independent footing from
another part of the same contract which cannot or ought not to be
specifically performed, the Court may direct specific performance of the
former part.
On the facts of the present case, the part of the first agreement dealing
with the subdivided lots can and ought to be specifically enforced as it
stands on a separate and independent footing from the construction part
which cannot or ought not to be specifically enforced. Thus on the part
which can be specifically enforced, the Court can in addition award damages
in appropriate cases under s. 18(3). Whether a contract is divisible or not
must depend on the particular circumstances of each case, the terms of the
contract and the nature of the property (see Harendra v. Nandalal
[1933] AIR Calcutta 98). The distinction between Privy Council case of
Graham v. Krishna Chunder Dey (ante) and our case is this. In
Graham case two plots of land were sold at one price and the other terms
of the contract also dealt with the two plots together. Thus not only the
price but the other terms were indivisible. Whereas in the first agreement
of our case the contract draws distinction between the land and the
construction part. Not only the price but the other terms are divisible and
based on a separate and independent footing. As stated earlier the lands are
mainly governed by terms provided in the instrument itself and whereas the
construction part is principally governed by terms and conditions
incorporated into the agreement by the Housing Developers legislation. In
relation to our s. 15 (which is equivalent to s. 16 of the Indian Specific
Relief Act 1877 which has since been repealed by the Specific Relief Act
1963), Lord Sumner had this to say at pp. 92 and 93:
Accordingly, s. 16 (which appears to be novel in the width of the power
which it confers) afforded the only ground on which the Court could help
him. To make this section applicable it had to be shown that there was a
part of the contract, to wit, that relating to plot A which (a) `taken by
itself could and ought to be specifically performed', and (b)' stood on a
separate and independent footing' from the other part of the contract, which
admittedly could not be performed.
Their Lordships think (1) that before a Court can exercise the power
given by s. 16 it must have before it some material tending to establish
these propositions, and cannot apply the section on a mere surmise that, if
opportunity were given for further inquiry, such material might be
forth-coming and possibly might be found to be sufficient; and (2) that the
words of the section, wide as they are, do not authorize the Court to take
action otherwise than judicially, and in particular do not permit it to make
for the parties or to enforce upon them a contract, which in substance they
have not already made for themselves.
One of the underlying principles in the Privy Council judgment is the
reluctance of the Court to rewrite a contract for the parties. In that case,
two Judges of the Indian High Court had allowed an appeal and held that s.
16 (our s. 15) applied, but since there was no evidence before them of the
value or character of the two plots, they remitted the case to the trial
Judge in order that he might take evidence and assess the abatement of price
to be allowed in respect of the failure to make title to one of the plots.
The Privy Council allowed the appeal and restored the judgment of the trial
Judge in holding that s. 16 did not apply. If the effect of granting
specific performance is to enforce upon the parties a new contract as to the
price or other terms which go to the root of what they have already
bargained for themselves, then the Court would refuse to make the section
applicable. Applying the test laid down by Lord Sumner to the facts of the
present appeal, it is self-evident that there is a part of the first
agreement viz the transfer of the terrace lots "taken by itself could and
ought to be specifically performed", and secondly, this particular part of
the contract "stood on a separate and independent footing" from the other
part of the contract to wit the construction part which clearly could not
and should not be specifically performed as it would involve the Court with
lengthy and laborious supervision as to its performance.
For the same reasons, s. 14 does not apply to the second agreement
although it concerns only the sale of vacant land. It can therefore be
specifically enforced under s. 11 and in addition damages can be awarded
under s. 18(3). In respect of the 10 useless bungalow lots, we think the
learned Judge has exercised his discretion judicially by not ordering
specific performance but instead ordering the appellants to refund the
contractual price and also awarding consequential damages arising from the
breach of contract.
This ground of appeal that the respondents are not entitled to specific
performance and as well as compensation for damages must therefore fail.
As regards appeal against quantum of damages, the argument of the
appellants is that the respondents have in fact not suffered any loss under
the first agreement on the ground that the submission of plans was held up
by the respondents. As stated elsewhere in this judgment, we find no reason
to disturb the finding of fact by the learned Judge that the real cause of
breakdown of relationship between the two parties is the failure of the
appellants to persuade the respondents to agree to the two offending clause
in the proposed Clause 3 contract.
As regards the argument that indemnity
under r. 12(1)(r) only applies where the building has been completed but
delivered late, we find such interpretation is contrary to the intention of
the legislature. Under r. 12(1)(r) the appellants as a licensed housing
developer are liable to indemnify the respondents for delay in delivery of
vacant possession of the housing accommodation. The amount of indemnity
shall be calculated from day to day at the rate of not less than 8% per
annum of the purchase price commencing immediately after the date of
delivery of vacant possession as specified in the contract of sale. Since
the date of such delivery is not specified in the first agreement, it must
be deemed in accordance with r. 12(1) (o) to be not less than 18 months
after the date of signing of the first agreement. Mr. Sethu however submits
that for r. 12(1) to apply, the vendor must be a licensed housing developer.
The licence is issued on the basis of a particular project. It is put
forward in argument that the appellants have a licence over Lot 3902 but
excluding the portions sold to the respondents. In our view this argument
fails to take into account the acknowledgment in Clause 9 of the first
agreement that the property sold formed part of the overall development of
the "said land" which by virtue of preamble (A) has reference to Lot 3902
comprising the whole area of approximately 49.8 acres. Since the appellants
have been issued with a licence over the whole of the Lot, it must, in our
view, include the property sold which only formed a small part of the whole
area. With regard to the second agreement, the appellants, naturally agree
with the order to refund the price in respect of the 10 useless bungalow
lots and in the learned Judge making no price even at the time of breach. As
to the refusal of the respondents to accept alternative lots we have already
given our reasons why Clause 7 of the second agreement does not apply. The
appeal against quantum by the appellants must therefore fail.
We now deal with the cross appeal of the respondents. The first ground of
appeal is that the indemnity under r. 12 (1)(r) ought to be calculated not
for a period of 18 months only from 12 December 1979 but should at least be
up to 21 January 1984 - date of judgment. This is a statutory relief given
for delay in giving vacant possession and as such the learned Judge is
justified in assessing the indemnity for 18 months only on the basis that if
the appellants had commenced building the terrace houses on 12 June 1978
i.e., two months after appointing themselves as the licensed developer under
the first agreement, the construction work would have been completed within
18 months as envisaged by r. 12(1)(o), and therefore they would have been in
a position to deliver vacant possession by 11 December 1979. As such the
argument that the appellants had used respondents' money for several years
should not arise since the basis of calculating the indemnity must
necessarily assume that the money paid by the respondents had been expended
by the appellants before the houses could be constructed. The fact that the
said sum of RM1,46,000 is far in excess of the 10% deposit permissible to be
demanded under the Housing Developers Legislation should also not be taken
into account in assessing the indemnity. We therefore reject this ground of
appeal.
The next ground concerns the interests on the refund of RM203,000 i.e.,
the contract price for the 10 useless bungalow lots under the first schedule
to the second agreement (see p. 296 of appeal record). The learned Judge has
awarded interest on this sum at the rate of 4% per annum from 9 August 1978
( being the date on which the balance of such contract price was paid by
respondents) to date of judgment - 21 January 1984 and thereafter at 8% per
annum until date of satisfaction. It is submitted on behalf of the
respondents that the learned Judge ought to have awarded 13% to 13.5% per
annum instead of mere 4%. We find no merit in this ground of appeal in the
absence of any evidence that 13% to 13.5% is the current interest rates
applicable to borrowers of money from commercial banks. Having ordered the
refund, we think it is only right that specific performance of the 10
alternative bungalow lots offered under Clause 7 should not be ordered.
Further, Clause 7 of the second agreement (which is identical with Clause 9
of the first agreement) could not be invoked in this particular case for
reasons already stated elsewhere in this judgment. We accordingly find no
merit also in this ground of appeal.
The next ground of appeal relates to the award of RM117,000 damages being
the increased cost of construction for the semi-detached bungalows at
RM13,000 per unit. It is argued for the respondents that the learned Judge
ought to have awarded RM169,000 under this head of damages since 13 units
were involved and not merely 9. In our view the 4 units were rightly
excluded since there was excess land in these lots for which the respondents
have not paid as required under Clause 9 of the second agreement. This
ground must also fail.
Lastly, it is argued that all sums paid by the respondents towards
development charges should be refunded as no development work has in fact
been carried out. As acknowledged by the respondents, the appellants must
have done work in clearing and levelling the various lots except levelling
of the 10 useless bungalows lots. Since specific performance has been
ordered for the transfer of 73 out of 85 lots purchased, and damages awarded
on the assumption that the houses could be erected thereon, we are of the
view that this ground of appeal should also be rejected. Under s. 18(4)
Specific Relief Act, the method of assessing damages is left to the
discretion of the trial Judge. Since the method has not been shown to be
wrong in principle, his award must stand.
From the learned Judge's 35-page painstaking judgment, we are satisfied
in this case that there is no merit in this appeal both on the issues of
liability and quantum of damages. The learned Judge did not err in law or in
fact. In the circumstances, we dismiss both the appeal and cross appeal with
costs. The deposit shall be paid to the respondents on account of taxed
costs.
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